Hydro Falls as Nomura Sees Bleak Aluminum Outlook: Oslo Mover

By Stephen Treloar -
Dec 7, 2012

Norsk Hydro ASA (NHY), Europe’s third-
largest aluminum producer, fell the most in more than a month in
Oslo trading as Nomura International Plc said the company may be
over-reliant in its bet on a recovery of metal prices.

Hydro, which competes in Europe with United Co. Rusal and
Rio Tinto Alcan Inc., fell as much as 3.3 percent, the most
since Oct. 23, and was down 3 percent at 26.87 kroner as of 1:11
p.m., making it the biggest decliner in the Bloomberg Europe
Metals & Mining Index.

“We would prefer companies where earnings growth is under
their control rather than being reliant on higher commodity
prices,” Neil Sampat, an analyst at Nomura wrote in a note.
Sampat, who downgraded the stock to reduce from neutral, sees
about 30 percent downside to 2013 earnings before interest,
taxes, depreciation and amortization, assuming an 2012 average
price of $2,000 a metric ton.

Aluminum producers are reducing expenses and cutting
capacity to buoy earnings as falling demand and weakening prices
weigh on sales. Hydro will cut costs by $235 a ton by the end of
this year under a plan to produce $300 a ton in savings by the
end of 2013 for its fully-owned smelters, compared with 2009.

Hydro reported a net loss of 277 million kroner ($49
million) last quarter as prices fell. Aluminum has declined 12
percent on the London Metal Exchange since reaching a 2012 high
of $2,353 a metric ton on March 1, dragged down by lower use of
the lightweight metal by makers of cars, planes and drinks cans.

“With bauxite and alumina production approaching capacity
and Qatalum ramped up to above nameplate capacity, we believe
the potential earnings growth from here is overwhelmingly driven
by an uncertain aluminum price recovery,” Sampat said.